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The next government must ensure regulators consider the impact of regulations on economic growth as well as market stability, according to Bim Afolami, the City minister and economic secretary to the Treasury, as new research from accountancy firm BDO shows that regulatory risk is now the number one concern for businesses.

Including the promotion of economic growth in the mandate of independent regulators was one of the topics explored at AFC’s recent conference, amid warnings from AFC CEO Edward Peck that recent regulatory interventions in the motor finance market have produced “the worst possible outcome” for consumers and risk reducing choice and access to funding.

Afolami founded the Regulatory Reform Group in 2022 to encourage a rethink about the purpose of regulation and the outcomes the regulatory system is trying to achieve. Its members, who include Lord Tyrie, former chair of the Competition and Markets Authority, has published two reports.

The first, The Purpose of Regulation, identified four trends causing concern. These were a lack of strategic direction to and by the regulators; strained regulatory relationships - both between industry and regulators, and between regulators themselves; incomplete lines of accountability around the objectives set for regulators and the measurement of regulatory performance; and the need to build up greater skills and knowledge within regulators and support them with sufficient resourcing.

The AFC conference heard Peck challenge delegates to fill the knowledge gap which affects regulators and “help policymakers find the all-important balance between protecting borrowers from outcomes and building a marketplace which can properly delivery good outcomes.”

The Regulatory Reform Group’s second report, The Principles of Regulation, concluded that “Too often regulators have been able to make decisions detrimental to consumers and the economy, and get away with it. Competition is being eroded and consumers left inadequately protected. It is the task of the Government urgently to enact major, and if necessary, systemic regulatory reform.”

Now, ahead of the election, Afolami has told the Times that the next government should seek cross-party support to ensure that “regulators think about economic growth as well as the safety and soundness of the market”.

Afolami said there was too much focus on how to “clamp down, interfere, constrain and regulate more.”

“All regulators are established either by government fiat or by statute. They are not judges nor a state of the realm,” Afolami said. “They’re ultimately established by parliament and I think it is clear that parliament, not just Conservatives but a lot of the Labour Party, are now saying we have to make sure that our regulators think about economic growth.

“We’ve got to think at all times what [our actions] will do to growth and competitiveness. If the answer is that it’s not going to improve it, we shouldn’t be doing it.”

Meanwhile BDO has published its 2024 Global Risk Landscape showing regulatory risk has climbed 14 places to the number 1 slot. Of more than 500 business leaders surveyed, 37% identified regulatory risk as “a major concern”, up from 7% last year. BDO said it believed “this may be due to the anxieties around the impact of elections” and the “potentially onerous financial penalties” for compliance failings.

AFC’s focus for 2024 is “Making regulation work” and the AFC summer conference included a number of sessions exploring lender and intermediary concerns around recent FCA and FOS regulatory intervention.